SuperGroup Sales Slowdown Could Help Pace Growth

Uber-trendy clothing retailer SuperGroup PLC (SGP.LN) fell from market grace Thursday as its meteoric U.K. sales growth unexpectedly slowed, but an evenly paced growth rate may be beneficial for the brand if it is to avoid the pitfalls of ubiquity.

The owner of the SuperDry and Cult premium clothing labels Thursday said fourth quarter sales grew 39% in the U.K., well ahead of market peers but sharply slower than the 92% seen in the third quarter.

For a market more used to serial outperformance from the retailer, the lower-than-expected growth rate sent shares in the company down more than 20% in afternoon trade despite wholesale revenue ahead of views and confirmation that SuperGroup will meet market expectations for fiscal 2011 profit.

"The market had been expecting SuperGroup to comfortably beat forecasts," Numis analyst Andy Wade told Dow Jones Newswires.

SuperGroup blamed the sales deceleration on the phasing of store openings in the quarter and the fact that it didn't have full summer stock in stores during the unseasonably warm early spring.

SuperGroup's clothing, particularly its eponymous SuperDry label, is worn by celebrities like David Beckham and Jude Law and has built up an exclusive cachet that has made it one of the most desirable premium casualwear ranges on the high street.

Retailing at around GBP50 for a hooded top and GBP80 for a pair of jeans, SuperDry sits at the upper end of the high street clothing market and by its very desirability has bucked the macro-economic slump.

"I've always felt slightly oblivious to macro-economic [effects]," Chief Executive Julian Dunkerton told Dow Jones Newswires Thursday, because "we have the most in-demand brand."

The group's sales growth and its international expansion opportunities have fueled the share premium that SuperGroup trades on.

The company was valued at 23 times forward earnings for fiscal 2012, well ahead of a peer average of 12 times according to Infinancials, although this fell to 19 times forward earnings after Thursday's earnings.

Although the group is still trading ahead of its peers, Wade said "we will need reassurance from future trading updates that this issue was a seasonal mis-step, rather than a far more concerning slowdown in brand momentum."

Fickle fashion has claimed its fair share of trendy brands, like French Connection Group PLC's (FCCN.LN) FCUK brand which fell out of favour several years ago, and the overexposure of the Burberry PLC (BRBY.LN) brand in the early noughties which took several years to rebuild.

"Brands have a finite market, and its a question of how quickly you want to address this market," Espirito Santo analyst Sanjay Vidyarthi said.

"While SuperGroup may evolve to deal with this issue, there is a risk [particularly in the U.K.] of reaching saturation or overexposure faster than you might do with brands that expand at a more measured pace," he added.

SuperGroup opened 21 U.K. retail stores in fiscal 2011 and the group has a similar number of openings earmarked for the U.K. this year.

"Its a tricky balance" of growth and exposure, Isabel Cavill, a senior retail analyst at industry insight group Planet Retail said.

Clearly growth rates of 70% a year are unsustainable for any retailer, she said, but SuperGroup's rate is reasonable for now.

As the group has built an established brand they've looked for quicker growth so "at the moment it's a fair pace, but [they shouldn't] keep up [the pace] in terms of store openings," as that could start to erode brand value.

By Kathy Gordon, Dow Jones Newswires; 44-207-842-9293; [e-mail]